Question: The Cash account in the general ledger of Ciavarella Corporation

The Cash account in the general ledger of Ciavarella Corporation shows a balance of $112,000 at
December 31, 2011 (prior to performing a bank reconciliation). The company’s bank statement shows a balance of $104,100 at the same date. An examination of the bank statement reveals the following:
1. Deposits in transit amount to $16,800.
2. Bank service charges total $100.
3. Outstanding checks total $12,400.
4. A $2,500 check marked “NSF” from Needham Company (one of Ciavarella’s customers) was returned to Ciavarella Corporation by the bank. This was the only NSF check that Ciavarella received during 2011.
5. Check no. 550 was actually written by Ciavarella in the amount of $3,200 for computer equipment but was incorrectly recorded in the general ledger as a debit to Computer Equipment of $2,300, and a credit to Cash of $2,300.
In addition to the above information, Ciavarella owns the following assets at December 31, 2011:
(1) money market accounts totaling $150,000, (2) $5,000 of high-grade, 60-day commercial paper, and (3) highly liquid stock investments valued at $245,000 at December 31, 2011 (these investments originally cost Ciavarella $225,000).
On December 1, 2011, Ciavarella sold a used truck to Ritter Industries for $18,000.
Ciavarella accepted a three-month, $18,000, 9 percent note receivable from Ritter. The note, plus accrued interest, is due in full on March 1, 2012. Ciavarella adjusts for accrued interest revenue monthly.
Ciavarella uses the income statement approach to compute uncollectible accounts expense. The general ledger had reported Accounts Receivable of $540,000 at January 1, 2011. At that time, the Allowance for Doubtful Accounts had a credit balance of $12,000. Throughout 2011, the company wrote off actual accounts receivable of $14,000 and collected $5,252,500 on account from credit customers (this amount includes the $2,500 NSF check received from Needham Company). Credit sales for the year ended December 31, 2011, totaled $6,480,000. Of these credit sales, 1 percent were estimated to eventually become uncollectible.
a. Prepare Ciavarella’s bank reconciliation dated December 31, 2011, and provide the journal entry necessary to update the company’s general ledger balances.
b. Compute cash and cash equivalents to be reported in Ciavarella’s balance sheet dated
December 31, 2011.
c. Prepare the adjusting entry necessary to account for the note receivable from Ritter Industries at December 31, 2011.
d. Determine the net realizable value of Ciavarella’s accounts receivable at December 31, 2011.
e. Determine the total dollar amount of financial assets to be reported in Ciavarella’s balance sheet dated December 31, 2011.
f. Assume that it is normal for firms similar to Ciavarella to take an average of 60 days to collect an outstanding receivable. Is Ciavarella Corporation’s collection performance above or below this average?

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